Tuesday, January 10, 2017

Lazard Ltd (NYSE:LAZ) has released its annual in-depth studies comparing the costs of energy from various generation technologies and of energy storage technologies for different applications.

Lazard's latest annual Levelized Cost of Energy Analysis (LCOE 10.0) shows a continued decline in the cost of generating electricity from solar technology, with lesser cost declines in other forms of renewable energy. Lazard's latest annual Levelized Cost of Storage Analysis (LCOS 2.0) shows cost declines in most battery storage technologies, but with wide variations depending on the type of application and battery technology.

In addition, LCOS 2.0, conducted with support from Enovation Partners, builds on the inaugural LCOS study conducted in 2015 with a refined methodology and the addition of new analysis that illustrates and compares the economics of "real-world" energy storage applications.

[On an unsubsidized basis, Lazard estimated the LCOE of land-based wind to be between $32/MWh and $62/MWh, lower than that of a combined cycle natural gas plant, which came in at between $48/MWh and $78/MWh.

Utility-scale solar costs had a smaller range, coming in between $46/MWh and $56/MWh for thin film installations. Rooftop and community solar costs were higher, due largely to scale.

The report shows solar costs falling faster than other forms of generation, with utility-scale PV costs ... falling 11 percent to between $46 and $61 per megawatt-hour (MWh), with thin-film costs a fraction lower than crystalline silicon costs.

This is roughly in line with cost estimates made by GTM Research, which finds that new power purchase agreements for large-scale solar are being signed at $35-60/MWh. However, these projects will typically be completed in 2017 or later, so costs are lower.

It also puts PV at less than half the cost of nuclear generation....

This makes utility-scale PV slightly more expensive than onshore wind, which came in at $32-$62/MWh. ...

For replacement of peaker plants, Lazard put the LCOS of lithium-ion batteries at $285-$581 per MWh, but the cost was much lower at $190-$277 for frequency regulation. Lazard also notes that while lithium-ion batteries are more expensive than peaker plants for some applications, some uses of energy storage are attractive relative to conventional alternatives.]

"Our studies continue to demonstrate that there are no one-size-fits-all solutions in energy generation or storage," said George Bilicic, Vice Chairman and Global Head of Lazard's Power, Energy & Infrastructure Group. "The demands of a developed economy will continue to require both traditional and alternative energy sources as the technologies driving renewable energy evolve."

"The economic viability of commercial energy storage systems varies widely by application and on a regional basis," said Jonathan Mir, Head of Lazard's North American Power Group. "As manufacturers and customers identify optimal technologies for different use cases, we expect further innovation and a continued drop in costs, which will help drive increased use of renewables."

The two studies offer a variety of insights, including the following selected highlights:

LCOE 10.0

The cost of generating energy from solar photovoltaic (PV) technology continues to decline: The median levelized cost of energy from utility-scale PV technologies is down approximately 11% from last year, and rooftop residential PV technology is down about 26%, although the latter is still not cost competitive without significant subsidies and other policy support.

The cost of generating energy from renewable sources other than solar, such as onshore wind, geothermal, and biomass, declined only at the margins from last year, reflecting both the maturing of technology in those areas and a relatively low level of investment. The median cost of generating energy from offshore wind generation declined approximately 22%, but remains substantially more expensive than onshore wind facilities, especially in the U.S.

Even though alternative energy is increasingly cost-competitive and storage technology holds great promise, alternative energy systems alone will not be capable of meeting the baseload generation needs of a developed economy for the foreseeable future. Therefore, the optimal solution for many regions of the world is to use complementary traditional and alternative energy resources in a diversified generation fleet.

LCOS 2.0

Due to refined methodology for LCOS 2.0, we recommend against making broad cost comparisons to the LCOS 1.0. However, the direct comparisons that can be made show that storage costs are generally dropping. For example, the median cost of using lithium-ion technologies decreased versus last year by approximately 12%, 24% and 11% for peaker replacement, transmission investment deferral and residential use cases, respectively, partially attributable to declining capital costs, among other factors.

"Behind-the-meter" merchant energy storage systems, which are sited at factories, universities and hospitals, among other high energy use locations, show great promise. However, their economic viability depends greatly on local market structure and incentives, among other factors. For example, a battery-based storage system that is economically viable in Pennsylvania may not be viable in Texas.

Industry participants continue to expect increased demand for energy storage to result in enhanced manufacturing scale and ensuing cost declines. If industry projections materialize over the next five years, cost-effective energy storage technologies will have increasingly broad applications across the power grid, such as providing an alternative to conventional gas-fired peaking plants in certain areas, as well as extending the usefulness over the course of the day of renewable generation such as wind and solar farms.

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